The first assessment of the damage caused by the flooding in Moldova announced by the government yesterday shows that total damage, including that in Transilvania, amounts to 1.2bn euros in financial terms, which is close to 1.8% of GDP or 5% of Romania”s general consolidated budget.
The Interior minister, Vasile Blaga, said yesterday that the damage in Moldova was worth 670 million euros, in addition to almost 500 million euros in Banat.
Previous estimates pointed to one billion euros at most.
The direct damage is made worse still by the effects of indirect damage suffered by companies and individuals due to poor traffic conditions for trains and roads, the suspension of business operations and medical expenses.
“Indirect damages may amount to hundreds of millions of euros besides the actual cost of rebuilding infrastructure and covering agricultural losses. They will show in the economic results in a few months,” said the economic analyst, Liviu Voinea.
It became clear since the peak of the floods in Moldova that economic parameters would be affected, however the exact extent of the disaster was unknown at the time.
This new economic burden in excess of one billion euros means the Romanian economy will lose at least one percentage point in terms of growth, while the current account deficit will rise to 9% of GDP (from an initially forecast 7.75%), that is more than 6bn euros), and the budget deficit could reach 1.3-1.5% of GDP or 0.9-1bn euros.
“It all depends on where the money is taken from to cover the damage: from the budgets of other ministries, from foreign or domestic loans, or aid from domestic and international institutions. If the first of these applies, then the budget deficit will stay the same but certain sectors will be affected; if the second is taken, the budget deficit will increase, which will damage the country”s foreign position (due to increased current account deficit and foreign debt). The third option would be the best, but it is highly unlikely we”ll receive such large amounts in aid. The costs will be transferred to the taxpayers in the end,” explained Andreea Vass, an economic analyst.
As to the exchange rate, the euro is forecast to fall still further.
“Inflation will be kept at around 8% only through the strong appreciation of the RON. Judging from what”s going on the forex market, the choice has already been made – between inflation and the current account deficit, they sacrificed the deficit,” added Voinea.
Besides the global macroeconomic perspective, the economic situation in the worst hit areas needs also to be taken into account, since they were already not performing well.
Industrial output in Vrancea county fell nearly 3% in the first five months, while there was stagnation in the counties of Bacau and Galati compared with a national average of 3.8%.
Merchants like Metro, for example, were faced with higher transport and employee-related expenses. The decline in traffic in the stores could lead to indirect losses for merchants, at least in the flood-affected areas.
Even companies with a national presence suffered collateral damage, such as unrealised or uncollected revenues due to the inability to fill orders in time or the increase in transportation costs due to use of detours.
CFR Marfa announced unrealised revenues of 2.8 million RON (some 800,000 euros) in only two days on the account of the floods.